Greg Kilminster
Head of Product - Content
APRA writes to RSE licensees to outline plans
The Australian Prudential Regulation Authority (APRA) has announced it will intensify its oversight of superannuation fund expenditure. This move is aimed at ensuring that spending by Registrable Superannuation Entity (RSE) licensees directly benefits members and adheres to their best financial interests. The initiative follows APRA’s observation of questionable spending practices within the industry and forms part of its ongoing efforts to safeguard retirement outcomes for Australians.
Some context
As custodians of Australians' retirement savings, RSE licensees are required to manage fund expenditure in the best financial interests of their members. Nevertheless, APRA has flagged concerns over the appropriateness of certain spending decisions, including instances where the benefit to members is unclear. In response, APRA is escalating its supervisory approach, focusing on discretionary expenses and cases where spending practices may not align with the best financial outcomes for fund members.
This stepped-up scrutiny aligns with APRA’s broader strategy, outlined in its recent Corporate Plan, to enhance the governance and accountability of RSE licensees.
Key takeaways
- Targeted supervisory approach: APRA will prioritise supervision of spending categories that may lack an immediate or reasonable benefit to members. The areas under review include discretionary spending such as travel, entertainment, and conferences, as well as payments to certain types of payees where the member benefit is unclear. The focus will be informed by data from SRF 332.0 Expenses submissions, with particular attention paid to spending outliers.
- Enforcement of accountability: RSE licensees under review can expect APRA to demand evidence demonstrating that their spending aligns with members' best financial interests. APRA will scrutinise decision-making processes, governance practices, and conflict of interest management. The regulatory body will also examine how RSEs oversee ongoing expenditure and its expected outcomes. This review will incorporate recommendations from Superannuation Practice Guide 515 and the role of accountable persons under the Financial Accountability Regime (FAR).
- Remediation and enforcement: Where deficiencies are identified, APRA will enforce corrective measures to rectify issues and improve practices. In line with its Enforcement Approach, APRA may publicly disclose enforcement actions where necessary. The information gathered from this process will influence APRA’s risk assessment and could lead to heightened supervision of non-compliant entities.
Next steps
The regulator will continue to publish annual expenditure data, increasing transparency across the superannuation industry. The first of these reports, covering the 2022-23 financial year, will be released on 30 October, with the 2023-24 data expected in early 2025.
Additionally, APRA will maintain close collaboration with the Australian Securities and Investments Commission (ASIC), ensuring a unified regulatory approach to oversight and governance in the superannuation sector.
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BIS report published on tokenisation
A new report from the Bank for International Settlements (BIS) highlights the potential opportunities and challenges of tokenisation for central banks and the global financial system. The report examines the implications of tokenisation on payments, monetary policy, and financial stability. While tokenisation could offer significant benefits, such as more efficient transactions, the report stresses that central banks must carefully consider the associated risks and costs.
Some context
Tokenisation involves the digital representation of traditional assets, like money or securities, on a programmable platform. This technology is already generating interest due to its potential to make transactions faster, cheaper, and more efficient. As financial institutions worldwide explore new use cases for tokenisation, the BIS report provides a useful analysis of its implications for central banks, especially as private sector initiatives in this area continue to grow.
The report also explores global challenges in the regulated payments sector. While tokenisation could help reduce frictions in financial markets, it also introduces new risks that central banks will need to address, particularly around governance, liquidity, and operational risks.
Key takeaways
The BIS report outlines four critical areas that central banks must focus on as tokenisation technology evolves:
- Private sector initiatives: As the private sector increasingly drives innovation in tokenisation, central banks must decide whether to foster interoperability or risk market fragmentation. The growing influence of private token platforms presents new questions for central bank oversight and coordination with the private sector.
- Settlement asset trade-offs: Central banks must carefully assess the trade-offs between different settlement assets used in tokenisation arrangements. This includes balancing the use of central bank digital currency (CBDC) against private alternatives, which could affect the demand for central bank money.
- Regulation and oversight: The report emphasises the need for sound regulatory frameworks to govern tokenisation arrangements. New forms of intermediation and market structures will require robust supervision to mitigate risks, including legal and operational vulnerabilities.
- Monetary policy impacts: Tokenisation could reshape the structure of financial markets, with potential knock-on effects for how central banks implement monetary policy. The report calls for further investigation into how tokenisation might influence the demand for central bank versus private forms of money.
The BIS report reinforces the significant potential for tokenisation to enhance the safety and efficiency of the financial system. However, it also warns that legal, technical, and economic challenges must be addressed to fully realise these benefits.
Next steps
The BIS has committed to continuing its exploration of tokenisation through its Innovation Hub projects, with a focus on ensuring that novel technologies are fit for purpose in the evolving financial landscape.
International standard setter the Committee on Payments and Market Infrastructures (CPMI) will continue to assess how tokenisation could impact the role of central banks, particularly with respect to the future demand for central bank money. This ongoing analysis will help central banks adapt to the rapidly changing technological environment while safeguarding the stability and integrity of the financial system.
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DFSA proposes updates to regulatory objectives
The Dubai Financial Services Authority (DFSA) has published a consultation paper proposing amendments to its statutory objectives. The proposed changes aim to better reflect the DFSA’s commitment to fostering the development of the DIFC as a leading international financial centre.
The DFSA’s current objectives, established in 2004, outline its core responsibilities, including promoting fairness, transparency, and efficiency in the financial services industry, protecting consumers, and maintaining financial stability. However, the regulator has identified a need to update these objectives to ensure they remain aligned with the evolving needs of the DIFC and the broader financial services landscape.
Key proposed changes include:
- Strengthening focus on innovation: The DFSA seeks to recognise the importance of innovation in the financial services industry and to support the development of new products and services.
- Promoting sustainability: The regulator aims to incorporate sustainability considerations into its regulatory framework, aligning with global trends and supporting the DIFC’s ambitions to become a sustainable financial hub.
- Enhancing international cooperation: The DFSA proposes to strengthen its commitment to international cooperation and coordination with other financial regulators to ensure a level playing field and promote global financial stability.
The DFSA is inviting comments from industry stakeholders, including financial institutions, professional advisers, and investors, on the proposed changes. The consultation period will close on 23 December 2024.
The DFSA expects to finalise the proposed changes following the consultation process and to submit them to the Ruler of Dubai for approval. Once approved, the amendments will come into effect and will guide the DFSA’s regulatory activities in the years to come.
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SEC's Division of Examinations priorities published
The Securities and Exchange Commission's Division of Examinations has released its annual examination priorities for fiscal year 2025. The focus areas outlined in the report aim to address emerging risks and protect investors in the US capital markets.
Key examination areas for FY 2025
Investment advisers
The Division will review advisers’ adherence to fiduciary duties and the effectiveness of their compliance programs. It will focus on:
- Fiduciary standards of conduct, including advice on high-cost or complex products.
- Compliance with new rules on private funds, Form PF, and marketing.
- Special attention to new or never-examined advisers and those advising on illiquid assets like real estate.
Investment companies
Examinations will prioritise registered investment companies (mutual funds, ETFs) to ensure sound governance, proper disclosure, and compliance with emerging rules. Areas of focus include fees, service provider oversight, and portfolio management practices, especially in funds with exposure to volatile assets.
Broker-dealers
The Division will examine compliance with Regulation Best Interest and Form CRS. Priorities include conflict management, investor disclosures, and recommendations for high-risk products such as crypto assets and complex investments. Broker-dealer financial responsibility rules and trading practices, including mobile apps and order execution, will also be scrutinised.
Self-regulatory organisations
The SEC will assess national securities exchanges, FINRA, and the MSRB to ensure they meet their regulatory obligations and enforce compliance.
Clearing agencies and other market participants
The Division will conduct risk-based examinations of clearing agencies, focusing on financial and operational risks. It will also review the activities of municipal advisors, transfer agents, and security-based swap dealers.
Key risk areas
Information security and operational resiliency
Cybersecurity remains a top concern, with examinations focusing on data loss prevention, identity theft protection, and operational disruption risks. The Division will review policies related to third-party IT services and incident response.
Emerging financial technologies
Registrants using AI, automated investment tools, and digital engagement practices will be examined for accuracy and transparency. The Division will assess how these technologies affect compliance and investor protection.
Cryptoassets
Given the volatility in crypto markets, the Division will continue monitoring registrants offering crypto-related services, focusing on standards of conduct, risk disclosures, and operational resiliency.
Anti-money laundering (AML)
Examinations will review the adequacy of AML programs, focusing on customer identification processes, suspicious activity reporting, and sanctions compliance.
The document emphasises that the Division of Examinations remains committed to promoting compliance, protecting investors, and monitoring emerging risks across the financial industry. The FY 2025 priorities reflect the need for constant vigilance in response to an evolving market and technological
landscape.
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Gary Gensler speech: even leaders need to keep improving
In a speech at the 2024 SIFMA Annual Meeting, SEC Chair Gary Gensler outlined key reforms aimed at improving market efficiency, transparency, and fairness in the US equity markets. Reflecting on the changes that have taken place since the GameStop events nearly four years ago, Gensler emphasised the need to continuously update regulations to keep pace with technological advancements and protect investors.
Equity market structure reforms
Gensler highlighted the Commission’s recent updates to the equity market structure, the most significant since 2005. "We at the SEC have a duty to investors and issuers alike to regularly update our rules to drive greater efficiency and resiliency in the markets," he said, explaining the need for more regulation in light of the growth of electronic trading and off-exchange transactions.
One of the key changes has involved relaxing the minimum quotation increment, or "tick size", for many stocks. "For many stocks, under the updated rule, the new minimum will be half a penny," Gensler explained, adding that this would lead to more efficient pricing for investors. Another significant change is the lowering of the cap on exchange fees from three-tenths of a penny to one-tenth of a penny. This, Gensler said, "was appropriate at this time to lower the maximum fee that can be charged for access."
The SEC has also updated the definition of a "round lot", which had remained unchanged for over a century. This adjustment will allow more trades to be reflected in the National Best Bid and Offer, giving investors better access to competitive pricing.
Clearing and settlement improvements
Gensler discussed the successful transition of US equity, corporate bond, and municipal markets to a T+1 settlement cycle, which reduces the time between trade execution and settlement. Referring to the 2021 GameStop episode, Gensler noted that "GameStop was a real-world example that the market plumbing of clearing and settling transactions matters."
The move to T+1 was significant for risk management, Gensler argued. "The longer it takes for a trade to settle—the slower the plumbing—the more risk our markets assume," he said. Shortening the settlement cycle has not only reduced risks but has also led to estimated savings of around 29 percent in collateral held at clearinghouses, providing billions in cost reductions for market participants.
Transparency in short selling and securities lending
Following the GameStop events, Gensler reiterated the importance of transparency, particularly around short selling and securities lending. He emphasised that the SEC's new rules would "promote greater transparency about short positions both to regulators and the public," with investment managers required to report short sale data, which will then be disclosed to the public in anonymised form.
Gensler also addressed the securities lending market, worth over $3 trillion, which has been criticised for its opacity. "This market, though, is opaque. The public often cannot access data about it unless they purchase a subscription," Gensler stated. The new rule aims to rectify this by ensuring greater public access to securities lending information.
Digital engagement practices
Gensler next turned to the impact of digital engagement practices on investor behaviour, particularly in light of the GameStop incident. These practices, often driven by algorithms and behavioural prompts, have raised concerns about conflicts of interest. "Are their algorithms optimising just for the customer or also for the broker or adviser’s interests?" Gensler asked, highlighting the potential for conflicts when brokers and advisers use AI-driven tools.
In July 2023, the SEC proposed a rule on the use of predictive data analytics, and Gensler noted that the Commission is actively considering feedback from the public on this issue. He emphasised that "broker-dealers and investment advisers... need to ensure they are not putting their own interest ahead of the interest of their customers."
In closing, Gensler stressed the importance of keeping the US equity markets, "the deepest, most liquid markets in the world," competitive and efficient. "Even the capital markets leader must constantly look to improve and adapt to the times," he said. The SEC’s recent reforms aim to ensure that the US markets remain resilient, transparent, and equitable, benefiting both investors and issuers.
Click here to read the full RegInsight on CUBE's RegPlatform.
Hong Kong sets bold sustainable finance agenda to support net-zero transition
The Hong Kong Monetary Authority (HKMA) has unveiled an ambitious action plan aimed at reinforcing its leadership in sustainable finance and guiding the region’s transition to a low-carbon economy. The Sustainable Finance Action Agenda lays out a series of key goals to align the banking sector with international net-zero targets, foster investment in sustainable projects, and make Hong Kong the preeminent platform for green financing in the region.
Driving banks towards net zero
In a related letter to authorised institutions, the HKMA encourages all banks to achieve net-zero emissions in their operations by 2030 and in their financed emissions by 2050. Banks will be required to develop transition plans, detailing decarbonisation strategies and financing targets, with a focus on phasing out high-emission assets. These plans will be submitted to the HKMA on a 'comply or explain' basis starting tentatively in 2030.
The regulator has committed to supporting banks in this process by providing guidance on climate risk management, transition planning, and climate scenario analysis. In addition, banks’ efforts to align with net-zero targets will be factored into the HKMA’s Supervisory Review Process.
Enhancing transparency on climate risks
Increased transparency is a core objective of the agenda. Banks are expected to align their climate-related disclosures with international frameworks, including the International Sustainability Standards Board (ISSB) standards and the Basel Committee on Banking Supervision (BCBS) Pillar 3 climate-related disclosure framework. The HKMA will undertake preparatory work and consult with the industry on implementing these requirements, ensuring consistent and comparable disclosures across the sector.
Sustainable investment and regional transition
The HKMA will continue to prioritise environmental, social, and governance (ESG) investments across its portfolios. The Exchange Fund’s public equity holdings have already seen a 46% reduction in carbon intensity since 2017, with the HKMA setting a target of a 67% reduction by 2030.
In addition, the agenda sets out plans to deepen the HKMA’s focus on transition opportunities in Asia, mobilising investments in renewable energy, energy-efficient real estate, and innovative green technologies. The HKMA aims to strengthen stewardship and engagement to drive further sustainable investment in the region.
Making Hong Kong the green finance hub of Asia
The HKMA is encouraging both local and international borrowers, particularly from Mainland China and Belt and Road regions, to raise sustainable financing through the city. The goal is for at least one-third of bonds issued in Hong Kong to be green or sustainable by 2030.
To support this, the HKMA will offer incentives to prospective issuers and enhance outreach efforts. Additionally, the HKMA will continue to foster green innovation by promoting the issuance of digital green bonds and collaborating with international partners on sustainable finance projects.
Building a sustainable finance talent pool
The HKMA recognises the need for more expertise in sustainable finance across the region. The agenda outlines plans to close talent gaps by launching training programmes and collaborating with industry bodies to equip banking professionals with the necessary skills. This capacity-building effort is aimed at supporting the next generation of finance professionals to lead the sustainable finance transition.
Click here to read the full RegInsight on CUBE's RegPlatform.
SFC to fast-track simple fund authorisation
Hong Kong's Securities and Futures Commission (SFC) has announced the launch of the Fund Authorisation Simple Track (FASTrack) initiative, aimed at expediting the approval process for simple investment funds. From 4 November 2024, the new scheme will enable the SFC to authorise qualifying funds within 15 business days, significantly reducing the approval timeline.
Streamlining fund approval
The FASTrack initiative will apply to simple funds from jurisdictions that have mutual recognition of funds (MRF) agreements with the SFC. This includes regions such as Mainland China, the UK, and several European and Asian countries. The SFC is leveraging these MRF arrangements, which ensure that regulatory standards in these jurisdictions are comparable to Hong Kong’s, to simplify the authorisation process for eligible equity, bond, and mixed funds.
According to Christina Choi, the SFC’s Executive Director of Investment Products, FASTrack is part of a broader effort to enhance Hong Kong’s competitiveness as an asset management hub. “FASTrack will provide more clarity and certainty for fund launches in Hong Kong and broaden product choices without compromising investor protection,” Choi said. She noted that the initiative would also appeal to overseas and Mainland funds, further boosting the city’s standing as a premier market for asset management.
Pilot programme
The SFC will initially implement FASTrack as a six-month pilot, running until 4 May 2025. During this period, the Commission will monitor the scheme’s performance and make refinements as necessary before formalising it.
Accelerated timeline
FASTrack introduces a streamlined “5+10” model: the SFC will assess whether a new fund from an eligible jurisdiction meets the criteria within five business days of submission, followed by granting authorisation within 10 business days from the take-up date. This represents a significant improvement over the current average processing time of one to two months for standard applications and two to three months for non-standard applications.
With this new initiative, the SFC aims to attract more international and Mainland funds to Hong Kong, supporting the city’s role as a global financial centre.
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Ireland rolls out national payments strategy
The Central Bank of Ireland has unveiled its National Payments Strategy, setting out a comprehensive roadmap to enhance the country’s payments infrastructure. The strategy reflects the evolving landscape of digital payments while ensuring traditional payment methods, such as cash, remain accessible. The strategy aims to balance innovation with inclusion, ensuring the Irish payments system is secure, resilient, and future-proof.
Some context
Over the last decade, the payments landscape in Ireland has undergone a profound transformation. With consumers increasingly adopting digital payment methods, from card transactions to smartphone and wearable-enabled tap payments, the use of cash has declined. However, the Central Bank emphasises that cash still plays an important role in the economy, particularly for those who rely on it.
This strategy arrives at a time of rapid technological advancement in payments, prompting the need for a holistic review of the current system. A core element of this strategy is to ensure that while digital payments are embraced, traditional forms of payment are preserved, providing choice for all consumers, especially those less inclined towards digitalisation.
Key takeaways
The National Payments Strategy is anchored by four key principles that will guide its implementation:
- Access and choice: The strategy stresses the importance of offering consumers a variety of payment options, from cash to digital alternatives. Ensuring everyone in society can access their preferred payment method, including small businesses, is a central tenet of the strategy.
- Security and resilience: Safeguarding the payments system against threats such as fraud is critical. The strategy identifies measures to strengthen the resilience of payment systems and ensure public trust remains intact, even as new technologies emerge.
- Innovation and inclusion: While innovation in payment methods is encouraged, the strategy stresses the need for inclusive solutions. It emphasises the importance of interoperability across platforms, ensuring that digital innovation benefits all, rather than creating barriers for certain groups.
- Sustainability and efficiency: The strategy also considers the environmental impact of payments systems, calling for sustainable solutions that balance cost and benefit. Efficiency in the payments process is key to maintaining competitiveness in the global financial landscape.
The strategy was shaped through extensive consultation with stakeholders, including banking institutions, fintech companies, civil society, and regulatory bodies. Nearly 90 submissions were received, revealing broad agreement on the importance of maintaining consumer choice and access.
Fraud prevention emerged as a significant concern, with the strategy outlining several actions to combat payment fraud and preserve trust in the system.
Next steps
The publication of the National Payments Strategy marks a starting point rather than a conclusion. The strategy sets ambitious goals for the Irish payments landscape by 2030, aiming to create a more diverse, resilient, and inclusive payments ecosystem.
Action points include legislative initiatives like the Finance (Provision of Access to Cash Infrastructure) Bill 2024, which aims to ensure cash remains readily accessible. The strategy also aligns with broader European initiatives, such as the legal tender of euro banknotes and coins and the potential development of a digital euro.
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